e = Pulp & Paper estimate, p = preliminary, r = revised, n.a. = not available, GDP = gross domestic product. *For 35-lb SC-A. Prices prior to fourth-quarter 1995 changed to reflect change from 34-lb to 35-lb. 1. Shipments. Sources: American Forest & Paper Assn., Canadian Pulp and Paper Assn., Pulp & Paper Week. U.S. Bureau of Census, Statistics Canada, Pulp & Paper Forecaster

Market share of top five companies: 70%
Market share of top ten companies: 89%
Estimated 2001 North American capacity: 6.3 mtons
Capacity reflects corporate ownership changes and new machines as of 2001. 1. Includes specialty papers and Donohue. 2. Includes pending acquisition of Pacifica Papers and acquisition of Fletcher Challenge Canada. 3. Includes pending acquisition of Alliance Forest. 4. Two machines swing between newsprint and groundwood. Sources: Pulp & Paper Week, Company Profiles, company data.

Uncoated groundwood: weak advertising environment contributing to decline in demand/consumption

GRADE STRUCTURE. Uncoated groundwood papers (also known as groundwood specialties papers) are a higher value from newsprint, but are less costly than free-sheet grades. By definition, uncoated groundwood grades contain more than 10% mechanical pulp and varying proportions of chemical pulp and fillers. They are used in a variety of printed products such as telephone directories, catalogs, advertising inserts, Sunday newspaper magazines, direct mail flyers, business forms, and paperback books.

Typically, most uncoated groundwood papers are considered value-added from newsprint, with higher printing quality, higher brightness levels, smoother surfaces, and a higher price. Several of the uncoated groundwood grades, such as machine-finish (MF) off-set and rotonews, are marketed as cost-effective, slightly higher-quality substitutes for newsprint. In the case of supercalendered (SC) papers, they are a lower-cost alternative to lightweight coated (LWC) groundwood paper. Supercalendering and soft calendering add a glossy surface to make a paper (grades SC-A+, SC-A, SC-B, SC-C, and soft-nip) that competes with LWC for some end uses.

PRODUCTION/CAPACITY. Production of uncoated groundwood grades in the U.S. is expected to grow 7% from approximately 2.0 million tons in 2001 to 2.2 million tons in 2002, according to Pulp & Paper Forecaster. The growth estimate reflects a new machine coming online at Abitibi-Consolidated Inc.'s Lufkin, Tex., mill, which will contribute to capacity growth of about 2% annually. In addition to the Lufkin project, Alliance Forest Products Inc. has finished work on a C$275 million, 152,000 mtpy new machine at its Donaconna, Que., mill. Finally, last year Stora Enso's Port Hawkesbury mill started up the world's largest SC machine capable of producing 385,000 mtpy. Since 1997, there have been 11 uncoated groundwood machine modifications and conversions that have increased annual production by more than 1.4 million tpy.

In 2000, a total of 3.8 million tons of uncoated groundwood paper shipments were received into the U.S., according to statistics from the American Forest & Paper Assn. For the first five months of 2001, shipments of 1.5 million tons were running about 1% higher than the year earlier. Canadian shipments to the U.S. in 2000 ended the year at 3.2 million tons. For the first five months of 2001, Canadian shipments of 1.3 million tons were 1% higher than the same period last year.

MARKET OUTLOOK. The entire North American paper industry, including the uncoated groundwood sector, has suffered from an economic downturn in the first half of 2001, a downturn which is expected to continue for all sectors until at least the fourth quarter.

Since early March, the U.S. average transaction price for SC-A, primarily used in advertising inserts, has declined $70 to $80/ton $770 to $800/ton in July. The U.S. average transaction price for SC-B declined $20/ton for the same period to $740/ton on the low end. The dramatic price declines for SC grades can be attributed to a marked decline in demand and consumption, and an extremely weak advertising environment. Total domestic shipments of SC papers to North America declined 11.1% for the first half of the year, according to statistics from the SC council. Domestic shipments of SC-A were off 15.8% for the period at 377,000 mtons, compared to 447,000 mtons in the first half of 2000. Notably, shipments of SC-B and SC-C actually increased 6.6% for the period due, in part, to printers downgrading to less expensive grades in an effort to cut costs during a difficult economic period.

The decline in uncoated groundwood paper demand and consumption is expected to continue throughout the second half of 2000, or at least until the economy begins to recover and the advertising environment improves. In the fourth quarter, the U.S. should see a jump in uncoated groundwood shipments as end users begin stocking up for the back-to-school and holiday seasons in the fall and winter, typically busy periods for that sector.

by KATHRYN MACKENZIE, News Editor